Weekend Wrap for February 2, 2014

Soybeans:

For the week, March soybeans lost 2.00 cents, May -1.50, July – 5.75. The COT report revealed that managed money liquidated 12,497 contracts of their long positions and also liquidated 438 contracts of their short positions. Commercial interests added 824 contracts to their long positions and liquidated 8,704 contracts of their short positions. As of the latest report, managed money is long soybeans by ratio of 5.59:1, which is down from the previous week of 5.93:1 and the ratio of 2 weeks ago of 5.80:1.

Soybean meal:

For the week, March soybean meal gained 40 cents, May +70, July – $1.20. The COT report revealed that managed money liquidated 2,417 contracts of their long positions and also liquidated 1,674 contracts of their short positions. Commercial interests added 4,714 contracts to their long positions and also added 7,878 contracts to their short positions. As of the latest report, managed money is long soybean meal by ratio of 3.47:1, which is up from the previous week of 3.31:1 and the ratio of 2 weeks ago of 3.27:1.

Soybean oil:

For the week, March soybean oil advanced 10 points, May +3, July – 2. The COT report revealed that managed money liquidated 2,821 contracts of their long positions and also liquidated 4,155 contracts of their short positions. Commercial interests added 4,311 contracts to their long positions and also added 5,675 contracts to their short positions. As of the latest report, managed money is short soybean oil by a ratio of 2.30:1, which is up from the previous week of 2.26:1 and the ratio of 2 weeks ago of 2.21:1. The current ratio is the highest that we have seen in at least one year.

Corn:

For the week, March corn advanced 4.50, May +3.50, July +2.50. The COT report revealed that managed money liquidated 4,445 contracts of their long positions and also liquidated 10,332 contracts of their short positions. Commercial interests added 11,969 contracts to their long positions and also added 20,487 contracts to their short positions. As of the latest report, managed money is short corn by ratio of 1.20:1, which is down slightly from the previous week of 1.22:1 and the ratio of 2 weeks ago of 1.23:1.

On January 31, the March-May 2014 spread closed at 5.50 cents premium to May, which is the narrowest the spread has closed going back to April 17, 2013. The prior high of 5.75 cents premium to May 2014 occurred on May 31, 2013. The 50 day moving has been providing formidable resistance and March corn has begun to trade above the 50 day moving average of 4.28 5/8. Both data points are favorable, and if corn is to continue to advance, the daily low must be above 4.32 1/4. Additionally, March corn must break above the January 13 high of $4.35 1/2, and  after that corn should encounter formidable resistance at the 4.39 area. We strongly discourage short positions and if short, we recommend liquidating them. Corn remains on a short-term buy signal, but an intermediate term sell signal.

Chicago wheat:

For the week, March Chicago wheat lost 9.50 cents, May -13.25, July -15.50. The COT report revealed that managed money liquidated 1,125 contracts of their long positions and added 5,347 contracts to their short positions. Commercial interests added 12,544 contracts to their long positions and also added 9,148 contracts to their short positions. As of the latest report, managed money is short Chicago wheat by ratio of 1.68:1, which is up slightly from the previous week of 1.60:1 and the ratio of 2 weeks ago of 1.60:1.

Kansas City wheat:

For the week, March Kansas City wheat lost 11.75 cents, May – 14.25, July – 16.50. The COT report revealed that managed money liquidated 1,324 contracts of their long positions and added 189 contracts to their short positions. Commercial interests added 2,223 contracts to their long positions and also added 340 contracts to their short positions. As of the latest report, managed money is long Kansas City wheat by ratio of 1.14:1, which is down from the previous week of 1.19:1 and the ratio of 2 weeks ago of 1.16:1.

Performance year to date for major grains: March corn +2.84%, March soybean meal +2.18%, March soybeans -0.75%, March soybean oil -3.81%, March Kansas City wheat -3.90%, March Chicago wheat – 8.18%.

Cotton:

For the week, March cotton lost 1.38 cents, May -1.16, July -1.47. The COT report revealed that managed money liquidated 23 contracts of their long positions and added 4,166 contracts to their short positions. Commercial interests liquidated 698 contracts of their long positions and also liquidated 5,629 contracts of their short positions. As of the latest report, managed money is long cotton by a ratio of 4.28:1, which is down significantly from the previous week of 6.28:1 and the ratio of 2 weeks ago of 5.66:1.

During the past couple weekend reports, we have written about rising stocks and how this will eventually begin to impact cotton prices. As of January 31 certified cotton stocks held in ICE approved warehouses stood at 158,211 bales. This is more than double the stocks on hand on January 24 of 71,471 bales. To put the latest weekly increase in perspective, consider that from January 17 through January 24 cotton stocks rose from 50,979 bales to 71,471 bales, or an increase of approximately 40%. From January 10 through January 17 stocks increased from 43,202 bales to 50,979, or an increase of approximately 18%. In short, not only are stocks building, but the pace of the increase continues to expand as well. Current stocks are the largest since December 4, 2013 when total certified stocks registered 206,811 bales. On December 4, March cotton closed at 79.05.

Since cotton prices topped out on January 21 at 88.43 and nose-dived to a low of 83.66 on January 27, March cotton rallied from January 28 through January 30 from a low of 84.02 to a high of 86.81. During the rally, open interest declined by 1,911 contracts. In other words, the collective action of longs and shorts was to liquidate on the advance. This spells trouble for further advances, especially since managed money is getting increasingly bearish as evidenced by adding 4,166 contracts to their short positions while adding only 23 contracts to long positions. Due to March cotton being on a short and intermediate term buy signal, we will not recommend bearish positions. However, if long, we strongly advise to liquidate the position.

 Sugar #11:

For the week, March sugar gained 44 points, May +47, July +45. The COT report revealed that managed money added 8,395 contracts to their long positions and also added 10,189 contracts to their short positions. Commercial interests added 7,839 contracts to their long positions and liquidated 2,806 contracts of their short positions. As of the latest report, managed money is short sugar by a ratio of 1.33:1, which is nearly the same as the previous week of 1.34:1 but slightly above the ratio of 2 weeks ago of 1.29:1.

Coffee:

For the week, March coffee advanced 10.80 cents, May +10.50, July +10.10. The COT report revealed that managed money added 1,450 contracts to their long positions and also added 4,301 contracts to their short positions. Commercial interests added 2,389 contracts to their long positions and added 19 contracts to their short positions. As of the latest report, managed money is short coffee by ratio of 1.19:1, which is up from the previous week of 1.12:1 and the ratio of 2 weeks ago of 1.04:1.

Cocoa:

For the week, March cocoa advanced $119.00, May + 121.00, July + 120.00. The COT report revealed that managed money added 5,016 contracts to their long positions and liquidated 2,262 contracts of their short positions. Commercial interests liquidated 1,035 contracts of their long positions and added 7,752 contracts to their short positions. As of the latest report, managed money is long cocoa by a ratio of 7.94:1, which is up significantly from the previous week of 6.27:1 and the ratio of 2 weeks ago of 6.55:1.

Live cattle:

For the week, February live cattle lost 1.73 cents, April +32 points, June -62. The COT report revealed that managed money added 2,918 contracts to their long positions and liquidated 318 contracts of their short positions. Commercial interests added 1,133 contracts to their long positions and also added 6,600 contracts to their short positions. As of the latest report, managed money is long cattle by ratio of 9.28:1, which is up from the previous week of 8.88:1 and the ratio of 2 weeks ago of 9.38:1.

Lean hogs:

For the week, February lean hogs lost 15 points, April +78, June + 2.15 cents. The COT report revealed that managed money added 288 contracts to their long positions and liquidated 3,983 contracts of their short positions. Commercial interests liquidated 1,100 contracts of their long positions and added 3,105 contracts to their short positions. As of the latest report, managed money is long hogs by ratio of 4.00:1, which is up from the previous week of 3.15:1 and the ratio of 2 weeks ago of 2.84:1.

WTI crude oil:

For the week, March WTI crude oil advanced 85 cents, April +49, May +24. The COT report revealed that managed money added 10,969 contracts to their long positions and liquidated 17,404 contracts of their short positions. Commercial interests liquidated 11,317 contracts of their long positions and also liquidated 3,549 contracts of their short positions. As of the latest report, managed money is long WTI crude oil by a ratio of 5.83:1, which is up from the previous week of 4.21:1 and the ratio of 2 weeks ago of 4.35:1. Three weeks ago, managed money was long WTI crude oil by a ratio of 5.57:1.

Heating oil: On January 30, March heating oil generated a short and intermediate term buy signal.

For the week, March heating oil lost 1.87 cents, April -2.82, May -2.54. The COT report revealed that managed money added 12,787 contracts to their long positions and liquidated 1,663 contracts of their short positions. Commercial interests liquidated 533 contracts of their long positions and added 10,253 contracts to their short positions. As of the latest report, managed money is long heating oil by a ratio of 2.12:1, which is up substantially from the previous week of 1.34:1 and the ratio of 2 weeks ago of 1.15:1.

Gasoline:

For the week, March gasoline lost 3.92 cents, April -3.41, May -3.27. The COT report revealed that managed money liquidated 1,451 contracts of their long positions and added 3,396 contracts to their short positions. Managed money added 4,067 contracts to their long positions and also added 16 contracts to their short positions. As of the latest report, managed money is long gasoline by ratio of 2.12:1, which is down from the previous week of 2.54:1 and the ratio of 2 weeks ago of 3.70:1.

It is a very rare occurrence for heating oil to have a long ratio that is equal to, or greater than gasoline. Undoubtedly, the recent cold spell has had much to do with this. The gasoline ratio is the lowest in several months.

Natural gas:

For the week, March natural gas lost 5.5 cents, April +3.3, May +5.3. The COT report revealed that managed money added 6,042 contracts to their long positions and liquidated 11,330 contracts of their short positions. Commercial interests liquidated 5,022 contracts of their long positions and also liquidated 14,736 contracts of their short positions. As of the latest report, managed money is long natural gas by ratio of 2.40:1, which is up from the previous week of 2.16:1 and the ratio of 2 weeks ago of 1.87:1. The current ratio is the highest that we have seen in at least one year.

Performance year to date for petroleum and products: March natural gas +15.99%, March WTI crude oil – 1.10%, March heating oil – 1.97%, Brent crude oil – 3.86%, March gasoline – 5.56%.

Copper: On January 30, March copper generated an intermediate term sell signal and had generated a short-term sell signal on January 24.

For the week, March copper lost 7.45 cents. The COT report revealed that managed money liquidated 9,585 contracts of their long positions and added 9,370 contracts to their short positions. Commercial interests added 2,525 contracts to their long positions and liquidated 3,776 contracts of their short positions. As of the latest report, managed money is long copper by a ratio of 1.39:1, which is down dramatically from the previous week of 2.51:1 and the ratio of 2 weeks ago of 2.16:1.

From January 22 through January 31, March copper has closed lower for 8 consecutive days. March copper generated a short-term sell signal on January 24, and we advised clients to trade copper from the bearish side. Since the generation of the short-term sell signal, March copper has fallen 7.45 cents. From January 22 through January 30 (final stats available) total open interest has declined by 9,827 contracts. In short, liquidation has been the prime driver of lower prices. In the January 26 Weekend Wrap, we mentioned that managed money would provide fuel for a downside move.

The preliminary open interest stats for January 31 show an open interest increase of 1612 contracts. If this holds, the likelihood of a countertrend rally increases. After March copper generated the short-term sell signal on January 24, the market continued to move lower. As a result, we strongly advise against initiating new bearish positions at current levels because a rally is overdue.

From the January 26 Weekend Wrap:

“We are enthusiastic about the bearish side of copper at this juncture and with the long to short ratio of managed money at an elevated level, there will be plenty of fuel for the downside move.”

“A couple of caveats: Copper is volatile, which can make it difficult to trade and unfortunately options on futures are illiquid. For example, on Friday, only 10 contracts traded in the March option with total open interest in all strikes (puts and calls) of 601 contracts. For the May contract, total open interest is 111 contracts and only 6 lots traded on Friday. With weakening global stock markets, and the increasingly dismal economic situation in China combined with a hefty speculative net long position of manage money, it appears that copper has the momentum to easily reach the December lows of $3.15.”

Palladium:

For the week, March palladium lost $31.60. The COT report revealed that managed money liquidated 938 contracts of their long positions and added 523 contracts to their short positions. Commercial interests added 854 contracts to their long positions and liquidated 337 contracts of their short positions. As of the latest report, managed money is long palladium by ratio 6.47:1, which is down from the previous week of 7.99:1 and the ratio of 2 weeks ago of 7.24:1.

Platinum: On January 30, April platinum generated a short and intermediate term sell signal.

For the week, April platinum lost $52.90. The COT report revealed that managed money added 1,972 contracts to their long positions and liquidated 256 contracts of their short positions. Commercial interests liquidated 116 contracts of their long positions and added 80 contracts to their short positions. As of the latest report, managed money is long platinum by ratio of 6.44:1, which is up from the previous week of 5.73:1 and the ratio of 2 weeks ago of 4.69:1.

Gold:

For the week, April gold lost $24.70. The COT report revealed that managed money added 5,059 contracts to their long positions and liquidated 11,962 contracts of their short positions. Commercial interests liquidated 21,846 contracts of their long positions and also liquidated 3,863 contracts of their short positions. As of the latest report, managed money is long gold by ratio of 1.76:1, which is up from the previous week of 1.41:1 1 and the ratio of 2 weeks ago of 1.37:1.

Silver: On January 31, March silver generated a short-term sell signal, which reversed the short-term buy signal generated on January 14. Silver has been on an intermediate term sell signal.

For the week, March silver lost 64.5 cents. The COT report revealed that managed money liquidated 2,432 contracts of their long positions and added 3,386 contracts to their short positions. Commercial interests added 178 contracts to their long positions and liquidated 799 contracts of their short positions. As of the latest report, managed money is long silver by ratio of 1.16:1, which is down from the previous week of 1.44:1 and the ratio of 2 weeks ago of 1.54:1.

Performance year to date for metals: April gold +3.19%, April platinum +0.44%, March Palladium -1.73%, March silver – 1.77%, March copper -5.96%.

Canadian dollar:

For the week, the March Canadian dollar lost 47 pips. The COT report revealed that leveraged funds liquidated 6,878 contracts of their long positions and also liquidated 12,059 contracts of their short positions. As of the latest report, leveraged funds are short the Canadian dollar by a stratospheric 7.26:1, which is up significantly from the previous week of 5.25:1 and the ratio of 2 weeks ago of 4.16:1.

Australian dollar:

For the week, the March Australian dollar advanced 37 pips. The COT report revealed that leveraged funds liquidated 2,365 contracts of their long positions and also liquidated 1,155 contracts of their short positions. As of the latest report, leveraged funds are short the Australian dollar by ratio of 6.39:1, which is up from the previous week of 5.42:1, but slightly below the ratio of 2 weeks ago of 6.43:1.

Swiss franc:

For the week, the March Swiss franc lost 1.53 cents. The COT report revealed that leveraged funds liquidated 796 contracts of their long positions and added 448 contracts of their short positions. As of the latest report, leveraged funds are long the Swiss franc by ratio of 1.56:1, which is down from the previous week of 1.72:1 and slightly above the ratio of 2 weeks ago of 1.51:1.

British pound:

For the week, the March British pound lost 72 pips. The COT report revealed that leveraged funds added 8,550 contracts to their long positions and liquidated 5,683 contracts of their short positions. As of the latest report, leveraged funds are long the British pound by ratio 3.64:1, which is up from the previous week of 2.93:1 and the ratio of 2 weeks ago of 3.02:1.

Euro: On January 31, the March euro generated a short and intermediate term sell signal.

For the week, the March euro lost 1.92 cents. The COT report revealed that leveraged funds added 1,787 contracts to their long positions and liquidated 11,845 contracts of their short positions. As of the latest report, leveraged funds are long the euro by ratio of 1.93:1, which is up significantly from the previous week of 1.45:1 and the ratio of 2 weeks ago of 1.72:1.

As mentioned in a previous report, during past 2 years of issuing daily reports on the commodity and currency markets, we have never seen 3 signals generated in approximately a 3 week timeframe in the same commodity or currency. On January 8, the March euro generated a short-term sell signal but it remained on an intermediate term buy signal. On January 24, the March euro generated a short-term buy signal and continued to be on an intermediate term buy signal. January 31 was the first time in quite a while that the euro generated a short and intermediate term sell signal.

The current COT ratio is the highest since the December 17, 2013 tabulation date when the long to short ratio stood at 2.18:1. The trading range spanned from a high of 1.3810 on December 11 to a low of 1.3708 on December 13 and closed at 1.3765 on December 17. In short, the COT ratio was somewhat higher than the current ratio, but the trading range of the current ratio is lower. For example, the March euro made a low of 1.3533 made on Wednesday, January 22 then made a high of 1.3740 on January 24 and closed on Tuesday January 28 at 1.3665. 

As of the latest COT report (January 28), leveraged funds are net long the euro by 36,957 contracts. Open interest declined by 3,136 contracts on January 30 when the March euro declined 1.13 cents. The decline of open interest relative to volume of 266,225 contracts was dramatically below average. Additionally, preliminary stats for january 31 indicate that open interest increased by 5,529 contracts on volume of 328,809 when the March euro declined 66 pips. In short, the decline on Friday did not generate a enough liquidation for total open interest to decline. This means there are large numbers of speculative longs who will be forced to liquidate as prices move lower.

On Friday, the March euro closed at 1.3484, which is the lowest close since November 21, 2013 when the March contract closed at 1.3462. With prices at two-month lows, a number of money managers undoubtedly are showing losses on long positions and further liquidation will provide additional fuel for the downtrend. As is usually the case after the generation of sell signals, the market has a tendency to have a countertrend rally, which can last from 1-3 days. This is the opportunity to initiate bearish positions.

 Yen:

For the week, the March yen lost 2 pips. The COT report revealed that leveraged funds added 1,904 contracts to their long positions and liquidated 22,873 contracts of their short positions. As of the latest report, leveraged funds are short the yen by a ratio of 2.03:1, which is down significantly from the previous week of 2.67:1 and the ratio of 2 weeks ago of 2.97:1.

Dollar index:

For the week, the March dollar index advanced 68 points. The COT report revealed that leveraged funds liquidated 1,450 contracts of their long positions and also liquidated 942 contracts of their short positions. As of the latest report, leveraged funds are short the dollar index by ratio of 3.96:1, which is up from the previous week of 3.49:1 and the ratio of 2 weeks ago of 3.62:1.

Performance year to date for major currencies: March yen +2.86%, March dollar index +1.35%, March British pound -0.79%, March Australian dollar -1.81%, March Swiss franc – 2.07%, March euro -2.21%, March Canadian dollar -4.41%.

S&P 500 E mini: On January 27, the March S&P 500 E mini generated a short-term sell signal, but remains on an intermediate term buy signal.

For the week, the March S&P 500 E mini lost 5.50 points. The COT report revealed that leveraged funds added 40,356 contracts to their long positions and also added 7,974 contracts to their short positions. As of the latest report, leveraged funds are short the S&P 500 E mini by a ratio of 1.57:1, which is down slightly from the previous week of 1.67:1 and the ratio of 2 weeks ago of 1.53:1.

10 year treasury note:

On January 23, OIA announced that the March 10 year treasury note generated a short-term buy signal. From January 23 through January 30 (final stats only) total open interest increased only 100,315 contracts, which is minuscule and dramatically below average for a total of 6 trading days. In other words, the very light open interest increase indicates that market participants do not have a lot of conviction in the move. For the 10 year to continue to move higher, the daily low must be above 125-285.